Page 308 - PM Integrated Workbook 2018-19
P. 308
Chapter 11
2.4 Measuring risk
Debt Debt
Financial gearing = × 100 or =
Equity Debt + equity
This is the long term debt as a percentage of equity. A high level of gearing
indicates that the company relies heavily on debt to finance its long term needs.
Operating profit
Interest cover =
Finance cost
A decrease in the interest cover indicates that the company is facing an
increased risk of not being able to meet its finance payments as they fall due.
Net profit
Dividend cover =
Dividend
A decrease in the dividend cover indicates that the company is facing an
increased risk of not being able to meet its dividends payments as they fall due.
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